2000 (8) TMI 1088 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity of Section 78(5) of the Rajasthan Sales Tax Act, 1994.
2. Legislative competence under Entry 54 of List II of the Seventh Schedule.
3. Reasonableness of the penalty under Section 78(5) in light of Articles 14, 19(1)(g), 301, and 304(b) of the Constitution.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 78(5) of the Rajasthan Sales Tax Act, 1994:
The petitioners challenged the constitutional validity of Section 78(5) of the Act, which imposes a penalty equal to 30% of the value of goods for possession or movement of goods in violation of Section 78(2). The court examined whether this provision is ultra vires, beyond the legislative competence of the State Legislature, and whether it infringes fundamental rights under Part III of the Constitution.

2. Legislative Competence under Entry 54 of List II of the Seventh Schedule:
The court discussed the scope of Entry 54, which authorizes the State Government to levy tax on the sale or purchase of goods. The court emphasized that legislative entries should be interpreted broadly to include ancillary or subsidiary matters necessary to make the law effective. The court referred to multiple precedents, including United Provinces v. Mst. Atiqa Begum and Navinchandra Mafatlal v. Commissioner of Income-tax, to highlight that the power to levy tax includes the power to prevent tax evasion.

3. Reasonableness of the Penalty under Section 78(5) in Light of Articles 14, 19(1)(g), 301, and 304(b) of the Constitution:
The court analyzed whether the penalty under Section 78(5), which is linked to the value of goods, is reasonable. The court noted that penalties should have a direct and intimate connection with the taxable event and should not be arbitrary or excessive. The court referred to State of Haryana v. Sant Lal, where a similar penalty provision was found unreasonable because it was linked to the value of goods rather than the tax sought to be evaded.

Detailed Analysis:

Constitutional Validity and Legislative Competence:
The court held that the provisions of Section 78(5) are within the legislative competence of the State Legislature as they aim to prevent tax evasion, which is ancillary and incidental to the power to levy tax on the sale or purchase of goods. The court emphasized that the power to levy tax includes the power to enact provisions to prevent tax evasion, as established in Sardar Baldev Singh v. Commissioner of Income-tax and other cases.

Reasonableness of the Penalty:
The court found that the penalty equal to 30% of the value of goods is excessive and disproportionate to the nature of the obligation imposed on the transporter. The court held that such a penalty is unreasonable and violates Articles 14 and 19(1)(g) of the Constitution. The court emphasized that penalties should be linked to the tax sought to be evaded rather than the value of goods. The court referred to Sant Lal's case, where a similar penalty provision was struck down as unreasonable.

Conclusion:
The court declared Section 78(5) of the Rajasthan Sales Tax Act, 1994, unconstitutional to the extent it imposes a penalty equal to 30% of the value of goods. The court directed that pending proceedings for imposing penalties should be decided in light of this judgment, ensuring that penalties are reasonable and proportionate to the tax sought to be evaded.

Disposition:
The petitions were disposed of, and the court set aside the orders imposing penalties under Section 78(5) to the extent of 30% of the value of goods. The cases were remanded to the assessing officers to proceed in accordance with the law as interpreted in this judgment. The interim orders for the release of goods/vehicles were to continue until the proceedings were disposed of by the assessing authority.